The coalition government of the United Progressive Alliance (UPA), headed by Indian Prime Minister Manmohan Singh, succeeded in consolidating its position in Parliament in 2005. The UPA had been able to form a government in 2004 only after it had gained the support of the Left Front, an alliance of communist and radical groups, but predictions of a short-lived unity between politically diverse allies proved incorrect. In part this was due to disarray within the main opposition Bharatiya Janata Party (BJP). Internecine quarrels following the BJP’s shocking electoral defeat of 2004 and the continuing jockeying for power as the party’s aging leadership retired kept the BJP divided. Willing to wound but incapable of striking, the BJP failed in its efforts to break up the UPA coalition.

This, however, did not prevent the UPA from having its own share of internal squabbles and ideological differences. The Left Front, led by the Communist Party of India (Marxist) (CPI-M), stepped up its campaign against certain economic and foreign policies of the Singh government. On the economic side, the Left Front’s main objection was to the government’s proposals to sell its equity in public-sector enterprises. The Left insisted that privatization be restricted to unprofitable public enterprises and not include moneymaking large enterprises. A second area of difference related to the government’s policy on foreign investment. The Left Front was willing to accept foreign direct investment in the infrastructure sector, but it opposed such investment in banking, insurance, and other financial services as well as in retail trading.

Complicating matters for the UPA was the fact that the Left Front had been trying to create a “Third Front,” a new coalition led by itself and including a clutch of regional parties. These attempts were stepped up after Prakash Karat, a former student activist, took over as the general secretary of the CPI-M in the spring of 2005. Unlike his predecessor, Harkishen Singh Surjeet, who was regarded as pragmatic and moderate, Karat was a hard-line Marxist with an ambition to increase the Left’s presence in Parliament and its relevance to national politics. In addition to criticisms aimed at the government, Karat chose to target foreign policy initiatives pushed by the opposition Congress Party, especially an India-U.S. agreement on cooperation in such matters as civil nuclear energy. Sharp differences between the Left and the Congress over India’s decision to vote along with the U.S. and the EU on an International Atomic Energy Agency resolution regarding Iran’s adherence to Nuclear Non-proliferation Treaty obligations, also came to the fore.

A corruption scandal hit Parliament in December after 11 MPs were filmed allegedly accepting bribes; all were quickly expelled from Parliament.

K.R. Narayanan, the first Dalit (member of the lowest social caste) to serve as president of India (1997–2002), died on November 9.

The Economy

The Indian economy grew at a rate above 7% in 2005, following two years of 7% growth. There were no major concerns on the economic front, apart from the inflationary pressure exerted by the continued rise of global energy prices. The domestic inflation rate approached 5%, well above the 3% level at which it had been contained in recent years. This in part forced the central bank, the Reserve Bank of India, to announce a marginal increase in interest rates. The short-term outlook for the Indian economy was positive. The stock market continued to attract inflows of portfolio investment. While foreign-exchange reserves remained at high and comfortable levels, the current and trade accounts registered a deficit, owing to a sharp increase in imports. India’s trade deficit was balanced by a surplus on the capital account, owing to sustained high inflows of foreign-exchange remittances from Indians overseas.

The focus of the government throughout much of the year remained on securing new investments in infrastructure. The government launched new initiatives to step up investment in roads, railways, airports, sea ports, and power. A rural infrastructure program was launched to focus public expenditure on rural housing, power, telecommunications, and irrigation. The government continued to push for trade liberalization, entering into a range of new free-trade agreements, including ones with ASEAN (Association of Southeast Asian Nations) member states. Investment in roads, railways, and new urban infrastructure increased the demand for steel, cement, and other related industries.

India made several momentous decisions on foreign policy during the year. The underlying theme was the attempt to improve relations with major powers, especially the U.S., Japan, and the EU, and with its neighbours, including China, Pakistan, Afghanistan, and Myanmar (Burma). A U.S.-India joint statement was released in July, with Prime Minister Singh and U.S. Pres. George W. Bush initialing an agreement to cooperate in defense matters and in civil nuclear-energy development. India also signed bilateral strategic partnership agreements with the EU, Japan, and Russia and agreed to pursue strategic cooperation with China. Visits were paid to India by Chinese Prime Minister Wen Jiabao, Japanese Prime Minister Junichiro Koizumi, and British Prime Minister Tony Blair during the year, while India sent representatives to the Group of Eight summit meeting at Gleneagles, Scot., and to the first East Asian Summit in Kuala Lumpur, Malaysia.

India’s relations with Pakistan continued to improve; during Pakistani Pres. Pervez Musharraf’s visit to India in April, Singh and Musharraf spoke about the need to convert the “line of control” in Jammu and Kashmir into a “soft border” across which there could be freer and increased trade and movement of people. A first, but important, step toward that end was the resumption of bus service between Srinagar on the Indian side and Muzaffarabad on the Pakistani side. Crossing points were also opened along the line of control to facilitate humanitarian efforts following the massive earthquake that struck northern Pakistan in October. (See Pakistan:Sidebar.) Singh and Musharraf met a second time in New York City, where both were attending the session of the UN General Assembly, and they agreed to carry forward the dialogue process.

Singh’s visit to Kabul in midyear revived a once-close relationship between India and Afghanistan. With India’s help, a new parliament building was being constructed in Afghanistan, and Singh and Afghan Pres. Hamid Karzai pledged to build “a new partnership for the 21st century.” In July Singh also addressed the U.S. Congress, placing new emphasis on the importance of nurturing democracy around the world and vowing cooperation in efforts to fight global terrorism.